Boston Properties Pays Nearly $4B for Portfolio

NEW YORK CITY-Boston Properties has entered an agreement to acquire the General Motors Building and three other Manhattan assets for almost $3.95 billion, as was speculated last week. The REIT is spending just under $1.47 billion in cash, $10 million in stock and will assume about $2.5 billion on debt.

“The idea of a REIT like Boston Properties or any other REIT for that matter stepping up to the plate and doing a deal here is that they bring a lot to the table,” Anthony Paolone, an analyst at JP Morgan, tells GlobeSt.com. “They are liquid, they are good operators, they know the market, they know the assets and they have the ability to underwrite and close quickly on the transaction.” he says.

On the two-million-sf GM Building, located between 58th and 59th streets at Fifth Avenue and Central Park South, the firm is assuming $1.9 billion of secured and mezzanine loans. That part of the deal is set to close next month.

Boston Properties is also buying the 292,000-sf 540 Madison Ave. building at Madison and 55th Street, a 591,000-sf office building at 125 W. 55th St., and the 664,000-sf Two Grand Central Tower at 44th Street between Lexington and Third avenues. Those deals are being financed with a combination of secured and mezzanine loans and are expected to close after the GM Building.

An unidentified industry source tells GlobeSt.com that they believe this sale “comes close to solving Macklowe’s debt issues.” Macklowe Properties faced a $7 billion debt on a portfolio of office buildings it acquired last February from Equity Office Properties Trust. That acquisition was paid for by a $5.8 billion short-term loan from Deutsche Bank AG, $50 million in equity from Macklowe, and a $1.2 billion loan from Fortress Investment Group LLC. The unidentified source tells GlobeSt.com that “the big issue is the $1.4 billion bridge loan to Fortress, which is due very soon,” they explain, noting that they believe it is due sometime in June.

Goldman Sachs and Morgan Stanley are Boston Properties’ financial advisors, as well as Lehman Brothers and Deutsche Bank. Proskauer Rose LLP and Goodwin Procter LLP are giving the Boston-based REIT legal assistance. Goodwin Procter partners Mark Kirshenbaum, Edward Glazer and Ettore Santucci are advising on the tax and structuring issues related to the transaction.

The closing of the acquisitions is expected to occur in multiple steps, with the acquisition of the GM Building expected to close in June 2008 and the acquisition of the remaining assets occurring thereafter, according to a prepared statement. Boston Properties has posted a deposit in the form of a letter of credit in the amount of $165 million. The firm currently owns 139 buildings in Boston, Washington, DC, New York City, San Francisco and Princeton, NJ. It’s portfolio is currently 94.9% leased.

Additional reporting done by Natalie Dolce, Northeast bureau chief.